Are more disclosure requirements for public companies in the works?

Recent comments from SEC commissioner Luis Aguilar indicate that the SEC may consider new rules that would require public companies to disclose political expenditures. In his recent speech from February 24, 2012, Commissioner Aguilar informally called on the SEC to adopt political spending disclosure rules in light of the landmark U.S. Supreme Court Case, Citizens United v. Federal Election Commission, which struck down federal restrictions on corporate political spending as unconstitutional. Although public companies are still restricted from directly contributing corporate funds to political candidates, they are permitted to contribute funds for campaign advertisements that support or oppose political candidates. Additionally, companies may contribute to independent organizations that engage in political advertising or lobbying.

We previously blogged about a petition which was submitted by a group of ten law professors in response to the Supreme Court’s opinion in Citizens United asking the SEC to consider adopting rules that would require public companies to make disclosures about their political contributions. The petition was prompted by, among other things, the Court’s assertion that procedures of corporate democracy would be a means by which shareholders could monitor the use of corporate assets for political purposes and also effect corporate change where such political purposes were inconsistent with shareholder interests. As the petitioners pointed out, the Court’s reasoning is partially based on the assumption that shareholders have access to information concerning a company’s political spending. While certain companies voluntarily make political spending disclosures in their public filings with the SEC, there are currently no rules or regulations that require a company to make such disclosures.

Although the SEC has not taken any official action regarding political spending disclosure, any such action in the future would not be inconsistent with the SEC’s recent trend toward mandating certain “social disclosures” in public company filings. These new social disclosure requirements, such as the SEC’s recently proposed conflict mineral disclosure rules, are intended to provide transparency to certain social implications of a public company’s business operations. Opponents of these additional disclosure burdens have argued that they merely impose extra costs without affording any additional protection to investors, the fundamental principle of the federal securities laws. Public companies should continue to monitor the proposed and final rules promulgated by the SEC to ensure public filings comply with new and forthcoming requirements. Whether or not any further action is taken by the SEC on this matter, it is evident that shareholders are seeking out information relating to corporate political spending. As a result, public companies are likely to see an increase in the volume of requests for such information or shareholder proposals related to the subject matter in the future.

Gustav Schmidt is a member of Gunster’s Banking & Financial Services and Securities and Corporate Governance Practice Groups. He regularly advises public and private companies on matters involving securities and banking laws and regulations, compliance with national securities exchange rules, corporate governance issues and practices, M&A transactions, capital raising transactions, and general corporate law issues.

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The Securities Edge is published by Gunster’s Securities and Corporate Governance Practice. Our blog focuses on securities law topics of interest to executives of middle market businesses. We try to focus on the most important issues of the day and distill the complex and convoluted into easy to understand blog posts so company executives can get up to speed and move on to what’s really important: running their business.